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Eddie Lampert has built a reputation as one of the investing world's savviest money managers.November 17, 2004: 6:33 PM EST
By Yuval Rosenberg, CNN/Money contributing writer

NEW YORK (CNN/Money) -
Edward S. Lampert is frequently described as being reclusive, but the multimillionaire investor was front and center Wednesday as Kmart and Sears announced their $11 billion merger.

Edward S. Lampert, on the cover of "Business Week" magazine, will be chairman of Sears Holding, the combined company of Kmart and Sears, Roebuck & Co.

The 42-year-old Lampert, who is set to become chairman of the combined companies, was clearly the driving force behind the deal.

As Kmart's chairman, he owns nearly 53 percent of its stock through his ESL Investments hedge fund. He is also the largest shareholder in Sears. ESL holds a 15 percent stake in the retailer.

Lampert started his fund in 1988 after earning an economics degree at Yale University and then cutting his teeth under Robert Rubin at the risk arbitrage department at Goldman Sachs.

With his savvy bets on distressed or underperforming assets, he has built a reputation as a one of Wall Street's most successful and renowned hedge fund managers.

ESL Investments has returned an average of 29 percent a year since its inception, according to a BusinessWeek report, generally by building substantial positions in a few highly researched holdings.

Besides stakes in Kmart and Sears, Lampert's fund also owns large positions in car dealer AutoNation and auto-parts retailer AutoZone.

That concentrated approach has paid off handsomely for Lampert, who last year took home a $420 million pay package, the fourth-biggest in the hedge fund industry, according to Reuters.

And though he's known to be media shy, Lampert is no stranger to headlines.

Early last year he was kidnapped at gunpoint from a parking garage at ESL's Greenwich, Conn., offices. Four captors held him for ransom, keeping him bound and blindfolded for some 30 hours before he negotiated his own release.

The kidnappers were caught after Lampert's credit card was used to order pizza. The mastermind of the plot was sentenced to 15 years in prison earlier this year.

He's gotten plenty of coverage for more positive reasons as well. Lampert made himself available to BusinessWeek for a flattering cover story currently on newsstands. That's Lampert flashing a Livestrong wristband on the cover -- the popular yellow bands are sold by a Lance Armstrong foundation to support cancer research -- next to the headline: "The Next Warren Buffett?"

Those comparisons to the Oracle of Omaha have been tossed around over the years, but it is Lampert's Kmart turnaround that has particularly impressed investors.

"I think he's a genius," said veteran value manager Marty Whitman of Third Avenue Management, which helped fund Kmart's bankruptcy reorganization and now holds some 5 percent of outstanding shares in the retailer.

"Had he not been the leader who got this thing out of (Chapter) 11 in May 2003, there would have been nothing left for us pre-petition creditors," Whitman added. "I'm firmly convinced that's the case."

Lampert built his position in Kmart by buying up the discount retailer's debt during its bankruptcy. He helped steer Kmart through bankruptcy reorganization and became chairman when the company emerged from Chapter 11.

Since then, Lampert has held down costs and inventories, and generated cash by selling off some real estate. Kmart earlier this year sold 50 stores to Sears for $576 million and sold another 18 stores to Home Depot for $271 million.

Those deals left many on Wall Street wondering if Lampert was positioning Kmart to stay in the retail business long-term or simply using it as a vehicle to generate cash for investments.

"The retail performance has not been stellar up to this point," said Gary Giumetti, president of consulting firm McTevia & Associates in Eastpointe, Mich., which specializes in restructurings.

Still, under Lampert's guidance, Kmart has recently posted four consecutive quarterly profits and generated heaps of cash, even assales have continued to slide. Kmart on Wednesday announced a 13.7 percent drop in third-quarter sales.

Since it emerged from bankruptcy in May 2003, Kmart stock has climbed from $15 to $109. Of course, as the share price has soared, the value of Lampert's stake has as well.

Lampert has rung up similar gains with another big investment, AutoZone. He bought into the Memphis-based auto-parts retailer in the late 1990s, and eventually took a seat on the board.

With a growing piece of the company, Lampert pushed for changes. In the end, he brought in a new chief executive who cut costs and poured more money into buying back shares, helping boost per-share earnings. AutoZone stock shot up from the mid $20s and peaked above $100 late last year. It closed Wednesday at $87.21.